Late for an American debut, the BYD E6.
Its name is short for “Build Your Dreams,” but could the “B” in BYD soon stand for “bust”?
It’s starting to look like that for the Chinese firm that started out as a cellphone battery supplier but has morphed into one of that country’s more ambitious, home-grown automakers.
The Shenzhen-based firm, which is backed by American mega-investor Warren Buffett, has suffered a series of setbacks in recent months, ranging from recalls to confrontations with Chinese authorities. But the latest problem could be one that BYD has trouble rectifying.
The maker reported a 99% drop in third-quarter earnings, this week, triggering an equally sharp downturn in its stock price, which is nearing its 52-week low. Whether the company’s charismatic founder and chairman, Wang Changfu, can turn things around remains to be seen, but there are few signs of any immediate turnaround.
It wasn’t supposed to go that way. BYD’s little F3 has been the best-selling car in China this year, but is feeling the pinch of regulatory changes.
About the only positive point in a financial statement to the Hong Kong stock exchange is a modest 0.3% increase in overall revenues. But that number suggests the company is barely treading water in a market growing by double-digits. In fact, BYD announced that it was cutting its full-year 2010 sales forecast by 25%.
September sales slumped by 25%, following a 19% decline in August. The company blames an increase in taxes on small cars sold in China, but major Chinese competitors, as well as foreign-based joint ventures, collectively reported a 19% increase in September passenger car sales. For the year overall, car sales in China are projected to grow 25%.
Buffett’s investment in BYD – through Berkshire Hathaway’s MidAmerican Energy Holdings Co. subsidiary – amounts to 10% of the Chinese manufacturer. He continued expressing support for BYD as recently as August, though has not spoken out since the latest setback.
But other investors have responded. Immediately after the earnings decline emerged BYD shares posted the second-largest decline among 982 stocks on the MSCI Asia Pacific Index. In its latest round of trading it was down $4.55, to $46.50, nearing its 52-week low of $43.05, and barely half its 52-week high of $87.30.
By comparison, SAIC, the Shanghai-based manufacturer partnered with both General Motors and Volkswagen, today reported a 47% jump in third-quarter earnings, and indicated a strong fourth quarter is also likely.
Worried BYD investors have little to look forward to, according to a report by Bloomberg, which quoted Ricon Xia, a senior analyst with Mitsubishi UFJ Asset Management, warning the next quarter “won’t be very strong” for BYD.
But will things look better in 2011?
The Chinese maker has indicated it may miss an ambitious plan to begin shipping the E6 battery-electric vehicle to California in time for a planned 2011 launch. BYD has been hoping to take the lead in the auto industry’s global electrification, but a number of problems have plagued its product line. An earlier plug-in hybrid, which the maker claimed was the first mass-market PHEV in the world, had to be recalled due to problems with its batteries.
Complicating its problems, BYD had to surrender seven of its facilities to Chinese authorities earlier this year. The government claimed they were built illegally.
BYD was founded as a battery manufacturer – and now claims to be number one in the global cellphone market – hopes to offset its problems in the automotive industry by expanding into other alternative energy business ventures.